Today we saw something we’ve seen four times now in something like 16 months: Democrats dragged big oil CEOs to a “hearing” in which pandering Democrats did all the talking and no “hearing” at all.
And while these eager little media-pigs sought airtime and headlines, absolutely nothing was done to actually solve our energy problems – yet again. Remember Nancy Pelosi promising that if Democrats were elected, they would reduce the price of gasoline back in April of 2006?
Vote demagogue. Vote Democrat.
Any honest hearing would have focused on the word “supply.” You see, economists talk about something that Democrats don’t seem to comprehend: the law (that’s right – LAW!) of supply and demand. If you don’t have enough supply of an item that is in demand, lo and behold the price goes up, and up, and up. What economists see as a routine market phenomenon, Democrats see as a mystery that somehow evokes a massive conspiracy.
But, no, the focus was on profits. Oil company profits, that is. The oil companies – according to Democrats – are doing something that no decent corporation should seek to do: they are earning money.
Contrary to the demagoguing of Democrats, the profits made by oil companies are really not excessive. For example, Exxon’s profit margins are only 10.7%. Profit margins at Microsoft, on the other hand, are 26%.
We routinely get “news” stories on massive oil company profits, but what we never seem to hear is the story of massive taxation upon the oil companies. The plain reality is that the federal goverment gets twice the “profit” from a gallon of gas as the oil companies, on average. And when you factor in ALL government taxes, government makes nearly FIVE TIMES as much as do the oil companies.
Dr. Mark J. Perry, an economist at the Univeristy of Michigan, notes that:
After crude oil costs, gasoline taxes are the second largest contributor to the price paid at the pump. Together Federal and State excise taxes on fuel account for an average cost of approximately 62 cents per gallon. That’s a combined tax of about 20% per gallon of gas.
The federal tax per gallon is 18.4 cents per gallon, see the history of federal gasoline taxes here, and the state tax per gallon varies by state, see the complete list of state gasoline taxes here.
Average profit per gallon of gas for oil companies: 10 cents according to the EIA.
Perry concludes by citing a question posed by Thomas Sowell, that if Democrats really consider oil companies’ profits unconscionable, what do they have to say about the taxes they impose, which add a far greater burden to the costs paid by American drivers than those “obscene” oil company profits?
A little more documentation:
An October, 2005 Tax Foundation analysis, “State and Federal Treasuries ‘Profit’ More from Gasoline Sales than U.S. Oil Industry,” reported: “Federal and state taxes on gasoline production and imports have been climbing steadily since the late 1970s and now total roughly $58.4 billion. Due in part to substantial hikes in the federal gasoline excise tax in 1983, 1990, and 1993, annual tax revenues have continued to grow. Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues — more than twice the amount of domestic profits earned by major U.S. oil companies during the same period.”
A September Tax Foundation analysis, “Local, State and Federal Gas Taxes Consume 45.9 Cents Per Gallon on Average,” cited the 18.4 cents per gallon federal gas tax and provided a state-by-state “effective gasoline taxes per gallon” map. Notably, the most liberal states with the most demagogic politicians on the Big Oil profits topic, have the highest taxes. Federal and state taxes, for instance, top 60 cents per gallon in New York. The American Petroleum Institute has posted a PDF, “State Motor Fuel Excise Tax Rates,” with very detailed state-by-state data.
Let’s say a little more about the taxes that oil companies pay.
A study reveals that just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers (65,000,000 people!). Moreover, the tax rate for the bottom 50% of taxpayers is only 3% of adjusted gross income ($27.4 billion in income / $922 billion paid in taxes), and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).
That’s right: the average tax rate of the largest oil companies such as Exxon is 41%. And over the last three years, Exxon Mobil has paid an average of $27 BILLION EVERY YEAR in taxes.
Do you start to get it? They are making huge profits in terms of absolute dollars because their operation is so incredibly massive. However, in terms of their profit margins, they are well within the norm. And they are also paying taxes hand over fist, which increases the cost of gasoline far more than does their reasonable profit.
If big oil’s profitability were artifically restricted, what do you think would happen to investment? Or let me put it to you this way: would you rather invest in a corporation that yielded a 10% profit, or a 5% profit?
This is an IQ test, but unfortunately, congressional Democrats demonstrate themselves to be very, very stupid people.
They seem to think that gutting big oil’s profitability would somehow be good for the energy industry. They seem to think that those investment dollars would just somehow continue to pour in. Apparently, they think investors are as idiotic as they are. But they aren’t. They live in the real world, and they invest their money where the highest profits are. As investment money shriveled up, so also would investment in future energy resources and technologies. And gas would become more expensive.
Democrats – including both Democratic presidential hopefuls – have been threatening to levy a “windfall profits” tax to punish oil companies (because, apparently 41% is just too darn little). These demagogues shrilly yell in outrage over the oil companies’ modest profit, but conveniently and hypocritically ignore the burden that THEY are imposing on drivers.
Is there any reason to think that this totally irrational sounding, counter-intuitive approach would work? History proves it’s every bit as stupid as it sounds.
According to the Congressional Research Service (CRS), is that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.
As Jonathon Williams puts it, “This nation’s experiment with windfall profits taxes in the 1980s proved to be economically devastating. When it was last tried, the windfall profits tax failed to raise even a fraction of the revenue forecasted and crippled the production of the domestic oil industry. But as they say, those that fail to learn from history are doomed to repeat it.”
Having said all of this, I am not attempting to “defend” big oil companies. They are corporations, after all, and almost by definition engage in a rather amoral pursuit of profits by exploiting every avenue they can. Oil companies aren’t any better than any other corporation; and given their huge size, they are quite probably worse than average.
What I am saying is that the truly “unconscionable” figures in our energy mess are congressional Democrats, not oil companies that would do far more to solve our problems if only liberals would stop deceitfully imposing one costly burden after another upon them, and then blaming them for the resulting high cost of gas. And what I’m saying is that we need big oil far more than we need Democrats.
Unless you don’t mind riding your bike everywhere you go from now on, that is.
Start Thinking Right 